How Do I File for an Extension?

federal tax return

From individuals and families to non-profits and government contractors, tax season seems to appear faster and faster each year. An extension of time to file gives you more time to prepare your federal tax return.

Although you may request up to an additional six months to file your individual income tax return, this does not grant you any extension of time to pay your taxes. It is also essential that you apply for an extension no later than the regular due date of your return.

Here are three ways you can request an extension:

1. E-file Your Extension Request 

Regardless of your income, individual tax filers can submit their Extension Request with the assistance of a tax professional who uses e-filing. Keep the electronic acknowledgement that the IRS has accepted your filing for your records.

2. Make a Payment and Get an Extension

Another way to get an extension is to pay all or part of your estimated income tax due and indicate that the payment is for an extension. Use IRS Direct Pay, EFTPS: The Electronic Federal Tax Payment System, or your credit or debit card. The confirmation number you receive for your records means that you do not have to fill out a separate extension form.

At Georgen Scarborough Associates, PC we have never wavered from our commitment to give each client the personal attention they deserve. For more information on how to apply for a tax return extension, please contact us today. Our tax preparation experts are ready to assist you with tax returns for individuals and small businesses.

What Tax Bracket Am I In?

federal income tax brackets

Did you know that there are a whopping seven different federal income tax brackets and that each one has its own marginal tax rate?

Determining which tax bracket you are in is dependent on your 2020 taxable income and your filing status, i.e. Single Filer, Married Couples Filing Jointly or Separately, Head-of-Household Filer.

Tax Bracket Table 

The table below refers to the 2020 tax brackets:

  Taxable Income in US$
Tax Rate Single Married Filing Jointly Married Filing Separately Head of Household
10% Up to $9,875 Up to $19,750 Up to $9,875 Up to $14,100
12% 9,876 – 40,125 19,751 to 80,250 9,876 to 40,125 14,101 to 53,700
22% 40,126 – 85,525 80,251 – 171,050 40,126 – 85,525 53,701 – 85,500
24% 85,526 – 163,300 171,051 – 326,600 85,526 – 163,300 85,501 – 163,300
32% 163,301 – 207,350 326,601 – 414,700 163,301 – 207,350 163,301 – 207,350
35% 207,351 – 518,400 414,701 – 622,050 207,351 – 311,02 207,351 – 518,400
37% Over $518,400 Over $622,050 Over $311,025 Over $518,400

It’s Not as Bad as It Seems 

Before you calculate the appropriate percentage of your income – take note that it is not a straightforward flat rate, which works in your favor.

For example, a single person with a 2020 taxable income of $100,000 does not pay ($100,000 x 24% =) $24,000. Rather, the taxable income is broken down into the applicable tax brackets that would have applied as your income accumulated:

The first $9,875 of your income is taxed at the 10% rate = $988.

Next you work out the difference between the top figures in the following rates. In this case, $40,125 – $9,875 = $30,250. That amount falls into the 12% rate, totaling ($30,250 x 12% =) $3,630.

Keep going: $85,525 – $40,126 = $45,400. That amount falls into the 22% rate, totaling ($45,400 x 22% =) $9,988. The final step is: the difference between your total income and the bracket maximum, i.e. $100,000 – $85,525 = $14,475. Only that amount will be taxed at the 24% rate = $3,474.

Add up all the tax amounts ($988 + $3,630 + $9,988 + $3,474) and your total due is $18,080. ($5,920 less that a flat rate of $24,000)

If you are still confused about which tax bracket you are in, or for any other tax tips, visit our website or contact the tax experts at Georgen Scarborough today.

Tax Laws That Can Save You Thousands

Tax regulations

Tax laws are continually changing, and it’s essential to be aware of all the new regulations, so you file your income taxes correctly and efficiently. By taking advantage of all new tax laws, you can potentially save thousands of dollars on your next tax return. Here are three of the recent income tax changes for the 2020 tax year that will affect many American taxpayers when they file their next return.

Recovery Rebate Credits 

The first round of stimulus payments ($1,200 single, $2,400 for couples), along with the second round ($600 per person) are tax free. These Recovery Rebate payments will not add to your 2020 taxable income. As these payments were technically advanced payments, you will have to calculate the amount you should have received. If you are owed more, you can get the difference back in the form of a refund, or a lower tax bill. Best of all, if you were overpaid, you will not need to repay the difference!

Sick and Family Leave Credits for Self-Employed

The new Families First Coronavirus Response Act has tax relief for self-employed people who couldn’t work due to coronavirus. Self-employed people might qualify for tax credits if they were unable to work for a reason that would have allowed them to claim coronavirus-related sick or family leave had they been an employee.

Boost Your Retirement Savings 

For those saving for retirement, the IRS has increased the employee contribution limit for 401(k), 403(b), and most 457 plans to $19,500, from $19,000 in 2019. For those over 50, the catch-up contribution limit has been raised to $6,500, from $6,000 in 2019.

Not being aware of changes in income tax laws could have you leaving thousands of dollars on the table. To make sure you maximize your refund, consider having your taxes done by a professional tax expert who will know all the relevant tax laws for your situation.

At Georgen Scarborough Associates, PC, we provide various accounting and tax services to people in Virginia, Maryland, and District of Columbia (DC). We provide tax preparation services for individuals, families, estates and trusts as well as other accounting services. If you need help or advice filing your tax return, please contact one of our tax preparation experts today.

Tax Tips for First-Timers

tax filing tips

Whether you have just reached adulthood, or are a new resident in America, the first time you file your income tax return can be a daunting experience. Here are some tips to help you through the process.

Do I even need to file a tax return? 

It’s possible that if your income is below a certain amount, you will not need to file an income tax return. However, if you want to claim any refundable tax credits, or get a refund for any income tax withheld from your paycheck, you must file a tax return.

Make sure you have all your tax documents 

Before you start, make sure you have all your tax documents ready. These can include:

  • W-2 (Wage and Tax Statement)
  • 1099 (Income other than employment income)
  • Educational expenses
  • Supporting documents such as receipts

What forms you need will depend on your individual circumstances, so think about things that could impact taxes like any change in your job, selling stocks or other investments, opening retirement accounts, or medical expenses.

Remember all your side income

If you have earned income from freelancing work like rideshare driving or deliveries, don’t forget to report that income on your tax return. You can often deduct expenses related to your work like maintenance costs to your car, insurance, supplies etc.

Claim all your relevant deductions and credits 

Deductions and credits can lower the amount of tax you owe or increase your refund, but you must file and claim them to take advantage of these. Common deductions for first-time filers include:

  • Education credits
  • Student loan interest deductions
  • Home office deductions for self-employed people

Choose how to file 

There are many ways to submit your income tax return. You can go old-fashioned and file by paper through the post office, but if you want your refund quickly, you should consider filing online or having your taxes done by a tax preparation service.

At Georgen Scarborough Associates, PC, we provide various accounting and tax services to people in Virginia, Maryland, and District of Columbia (DC). We provide tax preparation services for individuals, families, estates and trusts, and other accounting services. If you need help or advice filing your tax return, please contact one of our tax preparation experts today.

Top 5 tax tips for Individuals

personal tax tips

None of us gets out of filing our taxes and dealing with the IRS – it’s one of life’s certainties. Taxes can be complicated and intimidating, so here are five expert personal tax tips to make them a little easier to manage.

1. Never ignore the IRS

People who ignore the IRS do so at their peril. If you don’t file or pay your taxes, or do either of these after the stipulated deadlines, you could face hefty penalties and the IRS can seize assets. If you receive any communication from the IRS, pointing out any errors or missed deadlines, respond immediately. The worst thing you can do is ignore it.

2. “Bunch” your deductions

To ensure you can take the maximum deductions applicable in a particular year, you can “bunch” them together. What this means is that you time your deductible expenses into the same calendar year. You can achieve this by moving forward certain deductions from the current year into the next, assuming that you meet the thresholds for the current year.

3. Max out your retirement plan contributions

Whatever you are paying into your 401k or other tax-deferred retirement scheme, do your best to increase your payments if you can. The money you pay into these accounts reduces your tax liability. You won’t have to pay taxes on it until you withdraw it. This excellent saving incentive is also a great way to lower your tax bill.

4. Be careful of tax scams

If you start getting phone calls or emails claiming to be from the IRS or the U.S. Treasury, do not respond to them. It is quite common for scammers to try these tactics as tax season approaches. Be careful not to fall into their trap. Don’t worry though; it’s pretty easy once you know that the two government institutions will never contact you in this way; they will only reach out to you by mail when necessary.

5. Get the help of a certified public accountant

Tax laws and procedures seem to get more complicated by the year. Even if you successfully manage to file your own taxes, you may very well not be getting the full benefits of the various deductions and tax breaks that might be available to you. Get the help of a professional when it comes to filing your taxes. It takes the burden off your shoulders, ensures that it gets done correctly, and may help you get more money back into your pocket.

Georgen Scarborough CPAs is based in Vienna, Virginia. Aside from offering expert personal tax tips, we can help you with your tax preparation and filing. Contact us today.

Top 5 small business tax tips

1-Five Key Tax Tips for small business

Every small business wants to find the best ways to reduce their tax liability and better conduct their affairs with the IRS. Also, in 2021, as many companies face reduced income due to the COVID-19 pandemic, business owners will be looking for ways to cut costs wherever possible. Here are five key small business tax tips to help you do so.

1. See if your business is eligible for different tax treatment

Many small businesses can deduct 20% of their qualified income in calculating their taxes. This deduction generally applies to pass-throughs (companies where the owners pay the taxes themselves). The Tax Cuts and Jobs Act of 2017 reduced C-corporations’ tax rate to a flat 21%. Your tax practitioner can advise you as to whether it is better to stay a pass-through business or make the transition to a C-corporation.

2. Increase your business savings plan – or get one started

Small businesses have the option of running a variety of retirement plans for their employees, such as 401k, Simple IRA and SEP IRA. The contributions the company makes to these funds are tax-deductible. If you already have one of these plans in place, it might pay off to increase your contributions. If you don’t have one, you should definitely get one going this year.

3. Invest in new equipment

If you buy new or used equipment and put it into service before the end of the tax year, you could be entitled to a federal tax deduction of up to $1.05 million. The cap on this expenditure is $2.62 million. If you spend on new equipment within those limits, you could claim back a considerable amount of money.

4. Contribute to charity

 Charity contributions are a well-known method of reducing tax liability. You can usually deduct the equivalent of the fair market value of the assets you donate. Consult your certified public accountant to find the best way to make this method work for you.

5. Make the most of your losses

If, like many business owners, you have seen a significant reduction in income during 2020, you can use the provisions of the CARES Act to apply a net operating loss to income from the past five years for a potential immediate refund. Speak to a tax practitioner to see if this applies to you and how to make the claim.

Georgen Scarborough CPAs is based in Vienna, Virginia. For more small business tax tips and professional help filing your taxes, contact us. 

Reasons you need a CPA to do your taxes

1-Why You Need a CPA To Do Your Taxes

Filing your taxes can be stressful, especially if your tax return is any more complex than a standard individual W-2. Getting a CPA to do your taxes, rather than doing it yourself, can save you a lot of hassle and possibly some money. Here are five reasons why you may want to hire a certified public account to take your tax filing burden off your shoulders.

1. You have a small business or additional income streams

If you run a small business, you may not be aware of the numerous tax write-offs you can claim to save you money. If you have a side hustle or are working in the gig economy with several income streams, your return becomes a lot more complicated, but a professional can help you complete it without too much fuss.

2. The IRS asks for specific information

Many people find it very stressful if the IRS reaches out to them to ask for substantiation of income or expenses or other documentation. If you get a professional tax practitioner on your side, you can eliminate this stress. They will know how to deal with the IRS and help you comply.

3. You’re self-directing your retirement

If you have other investments to fund your retirement, aside from your 401k, that’s called self-directing. Filing for personal investments such as cryptocurrency or real estate can get a little tricky for the layperson. That’s why you may need a CPA to do the filing for you.

4. You have a rental property

If you are earning income by charging rent on one or more of your properties, you should seek the advice of a tax practitioner to see where you can make deductions.

5. You want to send your children to college

If you are planning on filling out a Free Application for Federal Student Aid (FAFSA), you would do well to seek out the help of a CPA. Unwanted assets or income in your child’s name could adversely affect the application, even if it works from a tax planning perspective. Let a professional help to make the right adjustments in this regard.

Georgen Scarborough CPAs is based in Vienna, Virginia. Contact us to find out how we can make your tax filing much easier.

Help from an accountant when filing for bankruptcy

bankruptcy

Bankruptcy can happen to anyone and is not necessarily due to financial irresponsibility. It is often due to job loss, divorce, illness, to name a few. Many people worry that bankruptcy will be a permanent or long-term setback, which is not the case. Your credit score can change in just two to three years after your discharge (most people are discharged after 9 months; however, the bankruptcy will show on your credit history report for 6 years after that date). Bankruptcy

Bankruptcy provides a financial fresh start by eliminating debt that you may have struggled for years to repay. A Certified Public Accountant can help you with areas that your attorney may not be sure about, such as: determining eligibility and discharge, knowing exactly when you should file, procure an offer in compromise, and represent you to the IRS.

What documents do you need when filing for bankruptcy?

Chapter 7 and Chapter 13 bankruptcy are the two most common programs you can use to reduce or eliminate your debt. The documents are the same for both, with slight variations. Make sure to check the guidelines provided by your state and your bankruptcy trustee. You will also be required to present the following documents:

  • Tax returns
  • Income documentation
  • Proof of real estate fair market value and mortgage statements
  • Vehicle registration, proof of value and insurance
  • Retirement and bank account statements
  • Identification
  • Other documents (child support, alimony, etc.)

By law, you are also required to complete a credit counseling class and obtain a certificate before you can file for bankruptcy. 

Bankruptcy is a serious decision and we do not want you to have any surprises along the way. Contact Georgen Scarborough Associates today should you have any questions regarding bankruptcy.

Tax Tips: The Best Ways to Spend Your Tax Refund

Getting your tax refund is exciting and although you may want to spend it on something fun, our tax tips will help you to make the most of your return to improve your financial wellbeing and set yourself up for a future that is a little less stressful. 

saving in piggy bank

Tax Tips to Help You Make the Most Out of Your Tax Refund: 

1. Pay off your debt 

This should be the priority whenever you have something extra at the end of the month or if you receive your tax refund. Debt can get out of control very quickly, and you should aim to pay off the bills with the highest interest first. Paying off your debt as soon as possible leaves you in a more secure position financially, and it will help you to avoid the stress of debt collectors knocking on your door.

2. Create an emergency fund 

Life can go very wrong, very quickly. Accidents, medical emergencies, car troubles and loss of income can ruin any person financially if there is no emergency fund to cover unexpected expenses. To avoid this, you should build an emergency fund that will help you to cover your living expenses for at least three months, but ideally up to six months. Even if you can’t put such a large sum away, any little bit will be beneficial when misfortune strikes. 

3. Increase your insurance coverage 

Protecting the lives of your loved ones as well as your property is always a sound investment. If you are financially sound in other ways, you can put your tax refund to good use by increasing your insurance coverage to include all property and the lives of your dependents. Accidents, damage and theft, are traumatic experiences which are made even worse by not having adequate insurance coverage. 

4. Boost your retirement

It is never too early to start putting money away for your retirement. Even if you already have a retirement fund, your tax refund can help you to grow it even more. Most Americans are not saving enough for their retirement. 22% of Americans don’t even have $5000 set aside for their retirement. Don’t gamble with your future, instead use your tax refund to prepare for your retirement.  

5. Start a savings fund

Whether you have your eye on a new car, a family vacation or if you’re putting money aside for your children’s education, you can use your tax refund to start saving for those big financial goals that you want to achieve. If you get into the habit of saving instead of getting into debt, your overall financial wellbeing will be much more sound than the average person.

6. Invest 

If you’re already in a sound financial position, you can use your tax refund to improve your situation even further by making a sound investment. Whether you decide to invest in stocks or use the money to upskill yourself, your tax refund can give you the push that you need to set yourself up for financial prosperity. 

7. Make improvements to your home 

The key is to make improvements that will increase the value of your home, help you to save on expenses or that will improve your quality of life. Avoid making improvements that will end up costing you more over the years, like installing a swimming pool that needs constant maintenance. Instead, you may want to improve the insulation in your home to bring down your heating bill or give your house a fresh coat of paint to enhance the aesthetic of the property.  

8. Replace an item that cost you money with a more efficient model 

If you own an appliance that gets used regularly, but it’s not a very efficient model, you can use your tax refund to replace it with something a little more modern. Old refrigerators, washers and dryers tend to use more energy to run, which can make your utility bill soar. Investing your tax refund in a newer appliance can help you to save money over the long run. 

9. Donate to charity 

If you’re in the fortunate position where you have financial stability, you can use your tax refund to help those who are less fortunate than you. Do a bit of research into charities in your area and consider donating to a cause that you feel passionate about.

For more tax tips and information on your tax refund, contact accounting service experts, Georgen Scarborough Associates, PC. today.

How to File Past-Due Tax Returns

If you have left filing your tax return too long and it is now past due, you may be incurring penalties and interest on the amount that you owe, and any amount that you are owed may be held back by the IRS until you are up to date with your tax returns. This guide will assist you in filing your past due tax return. 

Filing your tax returns that are past due 

What happens if I don’t file my tax return on time? 

Filing your tax return on time should be a priority to ensure that you don’t incur penalties and interest. Furthermore, failing to complete your tax return may cause you to lose your tax refund (if you have multiple unfiled returns). Unfiled returns can result in a delay in the approval of loan applications, which means that you won’t get approval for a business loan, home refinancing, or federal aid for higher education. 

If you are self-employed, it is vital to file your tax return on time. If you fail to do so, your income may not be reported to the Social Security Administration, and according to the IRS: “you will not receive credits toward Social Security retirement or disability benefits.” 

Failure to file past-due tax returns can result in the IRS taking steps against you, such as filing a substitute return for you (in which case you won’t get credit for deductions and exemptions that you could typically receive). This substitute return will create a tax bill that you need to pay, and if you don’t pay this bill, you will be handed over for collection (which means that the IRS may deduct a levy from your wages or bank account). 

Repeat offenders may receive additional penalties and can be prosecuted criminally for not complying with tax regulations. 

How to file past-due tax returns 

For help in filing your past-due tax return, visit the IRS website, or contact the IRS at 1-800-829-1040 or 1-800-829-4059. You will need to complete the current IRS Form 1040 and mark the return with the year for which you are filing. You can also submit your tax return electronically. If you are experiencing difficulty in filing your return, you may be eligible for assistance through programs such as TCE (Tax Counseling for the Elderly) or VITA (Volunteer Income Tax Assistance). 

What if I owe money on my past-due tax returns? 

If you owe money on your tax returns, you will need to make a payment to the IRS to settle your outstanding balances. If you can’t afford to pay the entire balance immediately, you can apply for a payment plan, temporarily delay collection or find out if you qualify for an offer in compromise. For more information on the options to pay, visit the payment section of the IRS website.  

If you have past-due tax returns, contact Georgen Scarborough Associates, PC, for assistance and advice. Our tax preparation experts are ready to assist you with your past-due tax returns, and tax preparation for individuals and small businesses.